*Originally published in PARCEL Magazine’s January-February issue.
With the holidays behind us, the logistics industry can finally breathe a collective sigh of relief. However stressful, the past few months of peak season have also shown more signs of economic recovery. Consumers came out in record numbers, making the fourth quarter of 2010 a bright spot on what was undoubtedly a barometer for future retail trends. Some may wonder, “What does this have to do with shipping?” The answer is quite a bit, actually.
Competing in a Changing Marketplace
The days of simply focusing on the creating a positive in-store experience are long past. New technologies, combined with an increasingly perceptive consumer, force all of us to find ways to meet growing customer demands without breaking the bank. The fact that many customers no longer ‘marry’ themselves to a brand (as price is the number one purchase factor) means that merchants’ ability to drive long-term customer loyalty is dependent not only on the products that they offer, but also on the total landed cost of putting those products into their customers’ hands. This is where shipping costs play a critical role in building customer loyalty.
The Rising Costs of Shipping
Nobody likes rate increases when it comes to shipping, especially when it can account for as much as 40 percent of an organization’s total landed operational costs. Nevertheless, there are several things to keep in mind as we negotiate contracts with carriers:
- Fuel rates are volatile and cause uncertainty in cost structures
- Investments in new technologies rise as shipping companies identify ways to reduce their carbon footprint in meeting customer demand
- In some cases, heavy fixed overhead and real estate costs associated with lower volumes must be absorbed
Because shipping is such a large factor in an organization’s budget, it is often one of the first places executives go to identify areas in which to reduce costs to remain competitive. While it’s always smart to work with your carrier to negotiate the best deal, I propose that you look even further than your rate chart for opportunities to save, which many merchants are missing out on today.
Additionally, as you look at alternative carriers, remember that your most loyal customers expect a certain level of service from you. As long as you establish customer expectations through a comprehensive policy that clearly communicates expectations, there is no harm in offering a lower-cost shipping alternative. Reducing costs may even help you attract new customers and build customer loyalty among long-time customers.
As carrier rates increase, one of the largest areas of opportunity is the manner in which corrugate costs are managed. Oftentimes, carriers face the challenge of reducing costs while merchants have not looked at their own shipping practices costs. Some questions to ask are:
- Am I minimizing the cube required to ship an item?
- Do I have a standardized set of products that allow me to reduce and/or eliminate the number of boxes that I need to keep on hand to meet organizational needs?
- Am I sourcing products locally when at all possible, allowing me to control my total costs and meet the needs of my customer?
There are many questions that can be asked, and my experience is that while many companies take the right approach to managing their business, there are an equal number that truly do not get everything they can out of the existing resources they have at their disposal.
In order to continue serving customers profitably, merchants must ensure that they’re doing everything possible to improve the level of service they receive from existing service providers, or be willing to utilize the services of others when their needs aren’t being met. And rather than placing the entire burden of cost reduction on service providers, businesses must also look to ways to reduce their own costs while meeting customers’ expectations. In an increasingly competitive market, your customers are not the only ones looking to you to deliver a better value – your shareholders are as well.